US DOE grants LNG export permit for Altamira LNG, first since permitting 'pause'

The US Department of Energy has issued a key LNG export permit for New Fortress Energy’s Altamira LNG project offshore Mexico's Gulf coast, marking the first such authorization by the agency since announcing its “pause” on the approvals in January.

The order issued Aug. 31 for the New Fortress project allows the exporter to ship LNG to countries that lack free trade agreements with the US. Non-FTA countries make up most the global LNG import market, making the permits critical for developers of large US export projects.

Altamira LNG stands apart from other projects caught up in the DOE’s pause because the relatively small project is already operating, having exported its first LNG cargo in August.

The DOE authorized the exports for a five-year period -- stopping short of the approval out to 2050 the developer had sought. While the department concluded the US gas market could support the exports for five years and cited energy security benefits during that period, it found greater uncertainty in the longer term about the demand for the exports and energy security benefits.

“Given the increased commitment to diversify energy sources and the wide uncertainty of global natural gas demand beyond 2030, DOE finds that sufficient information about energy security concerns related to US LNG is currently available only for the short to medium-term,” the DOE said in the order.

The DOE said that after two years, New Fortress may seek an extension through 2050, based on the record at that time.

New Fortress CEO Wes Edens in a Sept. 3 statement said the approval enabling the company to export LNG to markets worldwide “cements” its position as a leading global vertically integrated gas-to-power company and “enhances the marketability” of the LNG export project.

The White House in January imposed the pause until the DOE can update the analyses it uses for determining whether the exports are in the public interest. A federal district judge in July agreed to halt the permitting freeze but the DOE has challenged that injunction in the US Court of Appeals for the Fifth Circuit.

It remains to be seen whether the DOE’s decision previewed the administration’s policy direction or marked a modest step to appease the courts.

"It is notable that this project already is close to commercial operation and has a relatively small capacity, compared to many of the larger projects that have been caught in the DOE's permitting pause,” said Anusha de Silva, director for LNG analytics at S&P Global Commodity Insights. “It is therefore unclear to what degree this authorization signals improved prospects for other projects in the queue to receive their licenses relatively quickly.”

The New Fortress project off the coast of Altamira, Tamaulipas state, Mexico, can produce 1.4 million metric tons of LNG. It requires the DOE approval because it is supplied with US feedgas.

The project already had sufficient demand from countries that have free trade agreements with the US, but the authorization provides more destination options for Altamira, including other New Fortress facilities, Commodity Insights analysts said Sept. 3.

Charlie Riedl, executive director for the trade group Center for Liquefied Natural Gas, said the fact that DOE is offering New Fortress a non-FTA export permit is “on the whole positive, but I think that we will see if there are additional projects to follow.”

The DOE in a Sept. 3 statement emphasized that the approval would not increase the total volume of LNG exported from the project but adds flexibility for exports to non-FTA countries, including US allies in Europe this winter.

"DOE continues to update its analyses of LNG exports to ensure the best information, guided by the latest science, is considered for future reviews of LNG export applications,” the DOE said.

Export flexibility

Atlantic-based market sources expressed surprise at the news of the permit granted to New Fortress and said it could be considered a win for the company despite the five-year term.

New Fortress on Aug. 9 shipped the first partial cargo from the Altamira facility to be delivered to an import terminal it operates on the country’s Pacific Coast. The tanker carrying the shipment, the Energos Princess, was en route to the facility in La Paz, Mexico, after transiting the Panama Canal, according to S&P Global Commodities at Sea data.

New Fortress has said it expects the Altamira project to play a pivotal role supplying its operations in Latin America, with Puerto Rico described as a key downstream market for the company. The non-FTA approval will allow New Fortress to supply LNG from Altamira to gas infrastructure it operates in places including Brazil and Jamaica.

"The Altamira project is quite specific,” an Atlantic LNG trader said. “Larger projects would require a long-term DOE permit to justify shippers to commit and banks to finance the project."

New Fortress typically allocates around 50% to 60% of their production to their own portfolio and sells the balance to the market, another trader said. That balance could very well be sold to markets in Asia and Europe now that the permit has been granted.

“If they can make higher margins selling cargoes to Europe or Asia this winter, I'm sure they will,” an LNG market analyst at a US-based firm said.

Platts, part of Commodity Insights, last assessed the Gulf Coast Marker for US LNG FOB cargoes loading 30-60 days forward at $10.95/MMBtu Sept. 3, down 52 cents on the day.

Mixed reviews

Several environmental groups expressed disappointment in the decision.

“DOE should not issue any more decisions until it has completed its update to the studies that are incorporated in the public interest determination,” Nathan Matthews, senior attorney for the Sierra Club, said in a statement. “Once that happens, we believe the agency will come to the conclusion that additional gas export authorizations are not in the public interest, and any new or pending applications should be denied.”

Market participants said the DOE issuing a five-year approval for the project might have carried less political cost than granting a long-term authorization that enables a final investment decision on a major new LNG onshore LNG project in the US.

“Everyone knows that a firecracker won’t clear a logjam,” Fred Hutchison, president of trade group LNG Allies, said Sept. 3. “It takes both dynamite and willpower. . .We urge DOE to issue long-term licenses to the US LNG export projects that remain all jammed-up. Enough is enough.”